Bush Health Plan deduction would lower Social Security benefits

According to last Saturday's Cleveland Plain Dealer, President Bush's new health-insurance proposal, if enacted into law, could reduce Social Security benefits for many Americans, because the deduction would apply not only to income taxes, but also to payroll taxes that go to Social Security. 

The drawback for workers is that the less they pay into Social Security, the less they can collect when they retire.  An analysis by the nonpartisan, Washington-based Tax Policy Center predicts that if Bush's plan were to take effect, most of the people who save on payroll taxes would receive smaller Social Security benefits in retirement, and for low-and middle-income families, "this could translate into a very substantial drop in retirement living standards." 

Under the plan, the government for the first time would offer a tax deduction for people with private health insurance, whether they buy it on their own or get it from employers. 

The deduction would be $7,500 for an individual policy and $15,000 for a family policy, even if a worker's health plan costs less.  However, the Tax Policy Center's research suggests that any savings on payroll taxes would eventually be canceled out by the lower benefits workers get when they retire. 

The hit would be hardest for low- and middle-income workers, because Social Security's benefit formula gives them a larger return on what they pay into the system.  Workers who choose to forgo the deduction would owe taxes on the value of the coverage they get from employers.  "The reasons to oppose this plan keep rolling in," said Ruben Burks, Secretary-Treasurer of the Alliance.